Dell Down - Even as Server Sales Are Up

It was the fourth-worst trading day in Wall Street history, with the Dow off 679 points (about 8% of the index's total value) and the Nasdaq falling almost 9%, to 1,398 for the session.

There's a lot to point at here, but the main culprit seems to be the fact that a leading economic group has declared the U.S. is in a recession, and has been since December of 2007. Any bump we received from better-than-expected holiday sales last weekend was ground down by the gloom and doom surrounding the overall economy. A dispatch showing that manufacturing activity was at a 27-year low didn't help matters. Also, the economic malaise has really started to spread, with Spain reporting three million job losses last month and Japan's government issuing a report expecting tough economic times ahead for that country.

On the tech side, Dell was particularly hard hit on Monday, losing 10% of its overall value to finish at $10 per share (the other big dippers in tech were Qualcomm, also off 10% to close at $29.96 per share, and Comcast, which slid 10.9% to close at $15.45 per share).

It's not so hard to pinpoint Dell's exact troubles. The industry research firm Gartner came out with a report saying that global computer server sales fell sharply in the third quarter of 2008, declining by 5.4% to $12.7 billion. Every big computer maker seems to feel the pinch in the server arena, with IBM losing 4.2% in server revenues, and HP losing 3.9%.

Dell, who earns about half in server sales compared to industry leaders IBM and HP, saw its server sales fall 5.2% to $1.5 billion, even though its server sales rose 3.3% for the quarter. With less margin for error than its chief rivals HP and IBM, investors wouldn't cut Dell with much of a break. Unfortunately, it received the bad news the same day that the U.S. was officially decreed to be in a recession, and Dell subsequently found itself squarely in the line of fire yesterday.

It's not hard to pinpoint the reasons for the lousy environment for computer servers. As Gartner vice president for research Jeffrey Hewitt says "the specter of constrained economies and tightened credit" is to blame.

With U.S. Treasury Secretary Henry Paulson wringing his hands over the fact that banks won't lend money and consumer won't spend money, that picture isn't likely to change soon.

So keep away from Dell, at least until we see signs that the credit markets are thawing and companies are buying servers again. And that could take us well inside of 2009.